More troubling signals from the eurozone

Three pieces of news on developments in the eurozone come at the same time, together indicating potential destabilisation.

The Bundesbank, Germany’s central bank, has announced downgraded growth estimates showing a return to recession with a progressive decline in the country’s economy over this year and next.

The bank’s estimate for 2012-13 had been for 1% growth – now reduced to 0.7%; with the estimate for 2013-14 down to just above half the 2012-13 figure, at 0.4%.

An indication of the picture behind these growth revisions is that the bank’s previous estimate for 2013-14 had been for a substantial lift in growth over 2012-13 – at 1.6% – not for deep further retraction as the current estimates predict.

The Bundesbank has accounted for the return to recession by pointing to the crisis in the eurozone and the unstable economies that continue to threaten it.

Then in Italy, renegade former premier, Silvio Berlusconi, has withdrawn his People of Freedom [PDL] party’s support from the country’s current non-elected government of economists under Mario Monti.

The group was put in charge to bring down the serious debt that leaves Italy as one of a group of eurozone members whose need for a bail out can only be a matter of time.

Berlusconi says that Monti’s austerity measures have done damage to Italy and that he will run for office himself, yet again, next year.

In response, Monti has said that he will step down but will attempt first to get a financial stability bill and a  budget through the Italian parliament.

The prospect of the return to power of the 76 year old Berlusconi cannot be a reassuring one. He resigned just over a year ago because of the state to which his regime had brought the Italian economy – which Mario Monti was put in to address. He is also generally thought to be motivated to try to return to power to protect his own business interests through what is coming down the line.

These two developments show the very engine of the eurozone, the stout German economy – effectively the key paymaster of the entire enterprise, weakening significantly; alongside a move back to the erraticism of Berlusconi in one of the eurozone largest economies whose potential failure is of widespread concern.

At the same time, the President of the European Central Bank, Mario Draghi, has made it known that the ECB expects the entire eurozone to remain in recession until the end of 2013.

In his statement on 6th December, Draghi said: ‘The Governing Council continues to see downside risks to the economic outlook for the euro area. These are mainly related to uncertainties about the resolution of sovereign debt and governance issues in the euro area [Ed: our emphasis], geopolitical issues and fiscal policy decisions in the United States possibly dampening sentiment for longer than currently assumed and delaying further the recovery of private investment, employment and consumption.’

This amalgam of negative signals is, of course a warning to the UK, for whom the EU is a major market – but the good news here is that America – another of our major export markets – is showing real signs of revival, with its November 2012 unemployment figures falling to a level not experienced in that country since December 2008 [7.7%].

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6 Responses to More troubling signals from the eurozone

  1. May I remind the author of this article that the financial situation of the US is in fact worse than that of Europe and if republicans and Obama can’t agree the Fiscal Cliff will come into effect, which is by the way very likely to happen as you can read on

    So much for the good news, sorry to spoil your day.

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    • Unemployment falls to 7.7% as economy adds 146,000 jobs – a 4 year low.
      CO2 emissions at lowest for 20 years – a fall of 7.5% during the first 3 months of this year alone – Coal now only produces 32% of electricity generation whereas it was 48% in 2008 – and where is this I hear you ask – why – the US of A of course.
      Think of all the similar articles to the one you’ve just posted that could have and in fact are being written about our own – often warring – political parties.
      As Sgt Joe Friday always said ‘ just give me the facts,ma’am – just the facts “

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    • You are confusing two issues. Yes the Republicans are playing politics with the economy at the potential expense of America’s recovery. This is yet another ‘who blinks first’ stand off and, with Obama at the start of his second and last term, the Republicans can only damage their own credibility if they waste time in taking the country to the edge of the cliff.
      The real issue is the economic indicator we gave – that the American economy is moving to the point where unemployment is coming down; and, as you must know, the reverse is the case in the eurozone. Unemployment there is rising – and to a record level in the most recently published figures [for October and published at the end of November], which showed a rise to 11.7%.
      America’s situation is far from good news overall, given the political game playing – but it is a better story as a market for UK goods and services than is that of the eurozone.
      There is, additionally, neither agreement nor forthcoming agreement on the core necessity in the eurozone for a Single Regulatory Mechanism for member state banks. That is not a hopeful sign for the survival of the euro.

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  2. Newsroom’s being very polite about Berlusconi – he reminds me of the evil djinn that escapes the lamp, or even the monster who roars back to wreak mayhem in Nightmare on Elm Street – ‘here’s Freddy!’ – and how Europe managed to accommodate a sleazy crook like Berlusconi as one of their top leaders for so many years beggars belief. Now he’s coming back, unless the Italians wake up to cold reality.

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    • There is indeed. Iceland hit a rock bottom few of us can imagine but is already in a position where it is repaying the debts incurred by its collapsed banks – including the high interest Icesave investments taken out by several Scottish local authorities.
      Iceland is, with Liechtenstein, Norway and Switzerland, a member of EFTA which we believe, as a focused free trade organisation only, the UK would be well advised to consider as an alternative to EU membership.

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